How to Best Understand SKU Stands and the SKU Number

Executive Summary

  • The term SKU has a specific meaning and is associated with the SKU number.
  • The SKU number tells us important things about the properties of the SKU.
  • There is a question of whether the location is part of the SKU, sometimes it is and sometimes it isn’t. And when it is it can be quite beneficial.

Introduction

SKU stands for “stock keeping unit” is a commonly used term in supply chain management. According to the website Lokad, an SKU is..

“Refers to a specific item stored to a specific location. The SKU is intended as the most disaggregated level when dealing with inventory.”

A little later on, I will discuss why this explanation of the term is inconsistent with something called the SKU number. Understanding what the term SKU stands for means knowing a bit how the term first developed.

Understanding what the term SKU stands for means knowing a bit how the term first developed.

Origin of What the Term SKU Stands For

The term Stock Keeping Unit was originally used at the store level. So if one goes into a Target, each product has a bar code and is called a Stock Keeping Unit. That is a distinct item from any other item in that store.

And for that purpose, the term works perfectly well.

The problem arises when one works in supply chain management, and that same Stock Keeping Unit is in many locations, including warehouses. Therefore what the term SKU stands for does not translate well outside of the single store environment.

SKU Numbers

SKU numbers are internal numbers and letters that are used for products. Sometimes the SKU number can have a code that is human-readable build into it. For instance, the following SKU number could apply for socks.

  • NK-SK-BL-8-12-0023

The code of this type of SKU number would be the following:

Manufacturer, Color, Size, Model Number. Therefore this is

Therefore this SKU number tells us that this is an (NK) Nike, (SK) Sock, (8-12) Size 8 to 12, (0023) model number.

Most SKU numbers are short, and therefore, one has to know the “code” to read them. A SKU number both identifies the SKU from other SKUs but also provides information about the SKU to the individual/company/entity that maintains the SKU.

Location as Part of the SKU Number?

Something else interesting about SKU numbers is that they do not have a location component. I have never seen a SKU number that looked like the following:

  • NK-SK-BL-8-12-0023-SDDC

That is the last add-on being (SDDC) San Diego Distribution Center.

This is because it makes no sense to have a location appended to a SKU because obviously, a SKU travels through the supply chain, and if it had a location appended to the SKU number, then everytime that SKU was transferred it would have to have its SKU number altered. That would create a serious problem.

Conclusion

  • The term SKU has been around for a very long time.
  • What the term SKU stands for is not descriptive. That it does not tell the listener what they want to know.
  • The term SKU does not include within it whether it refers to a location, and opinions vary as to what its meaning is.
  • When you use the term SKU, it may have a different meaning to the listener.
  • SKU numbers are important components to supply chain management, and a SKU number both identifies the SKU from other SKUs and provides information about that SKU.

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  • Interested in Our Supply Planning Research?

    The software space is controlled by vendors, consulting firms and IT analysts who often provide self-serving and incorrect advice at the top rates.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, contact us and we will be in touch.

Brightwork MRP & S&OP Explorer

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Brightwork Research & Analysis offers the following supply planning tuning software, which is free to use in the beginning. See by clicking the image below:

References

https://www.lokad.com/stock-keeping-unit-(sku)-definition

I cover supply planning and stocking principles in the following book.

Safety Stock and Service Level Book

Safety Stock

Safety Stock and Service Levels: A New Approach

Important Features About Safety Stock

Safety stock is one of the most commonly discussed topics in supply chain management. Every MRP application and every advanced planning application on the market has either a field for safety stock or can calculate safety stock. However, companies continue to struggle with the right level to set it. Service levels are strongly related to safety stock. However, companies also struggle with how to set service levels.

How Systems Set Safety Stock

The vast majority of systems allow the setting of safety stock by multiple means (static, dynamic, adjustable with the forecast in days’ supply, etc..). However, most systems do not allow the safety stock to be set in a way that is considerate of the inventory that is available to be applied.By reading this book you will:

  • Understand the concepts and formula used for safety stock and service level setting.
  • Common ways of setting safety stock.
  • Service levels and inventory optimization applications.
  • The best real ways of setting both service levels and safety stock.

Chapters

Chapter 1: Introduction
Chapter 2: Safety Stock and Service Levels from a Conceptual Perspective
Chapter 3: The Common Ways of Setting Safety Stock
Chapter 4: The Common Issues with Safety Stock
Chapter 5: Common Issues with Service Level Setting
Chapter 6: Service Level Agreement
Chapter 7: Safety Stock and Service Levels in Inventory Optimization and Multi-Echelon Software
Chapter 8: A Simpler Approach to Comprehensively Setting Safety Stock and Service Levels

Service Level & Safety Stock Setting

Service Level & Safety Stock Setting

Setting service levels and inventory can be performed far more easily than is done at the vast majority of companies. Click the image to see how.

service_level_and_safety_stock_setting

Is the Term SKU a Useful Term?

Executive Summary

  • The term SKU tends to confuse people.
  • We cover the complications with the term.

The most important information carried by this term is two attributes. This is the uniqueness of the product and the uniqueness of the location. Does the term SKU communicate this information to the listener? In this article, you will find out. 

Introduction

SKU, which stands for “stock keeping unit” is a commonly used term in supply chain management. According to the website Lokad, an SKU is..

refers to a specific item stored to a specific location. The SKU is intended as the most disaggregated level when dealing with inventory.

That is not how I have found the term to be used in practice. Often when people use the term SKU, they only mean the “product” divorced from its location. For years the term SKU-Location or “SKUL” was commonly used in companies and still is.

The Problem with the Term SKU

The term Stock Keeping Unit was originally used at the store level. So if one goes into a Target, each product has a bar code and is called a Stock Keeping Unit. That is a distinct item from any other item in that store. And for that purpose, the term works perfectly well. The problem arises when one works in supply chain management, and that same Stock Keeping Unit is in many locations, including warehouses.

In that environment, the term SKU, which has some confusion as to whether it is tied to a location or not linked to a location is more confusing than helpful. I can say this because I have had repeated discussions where I have to ask, or the other person has to ask if they or I mean an SKU or an SKU location combination. For this reason, I recommend the use of a different term.

That is the term product location combination or “PLC” for short or even the “PL.”

The Product Location Combination, the PLC

The term “product location combination” is an excellent term because it is impossible to confuse with any other meaning. All supply networks are made up a mix of goods at locations. If we look at a company that carries 100 products and has 10 locations, then 1000 product site combinations are the maximum number of potential product location combinations.

Counting Valid PLCs

In most cases, the actual number will be significantly lower than this as companies don’t carry every product at every location. On the other hand, when on looks in the supply chain system, there are often many more product location combinations than the theoretical maximum because of old product locations that have not been removed from the system. Therefore another important distinction is how many “active” PLCs exist in the system.

Conclusion

  • The term Stock Keeping Unit has been around for a very long time.
  • Ther term Stock Keeping Unit is not descriptive. That it does not tell the listener what they want to know.
  • The term Stock Keeping Unit does not include within it whether it refers to a location, and opinions vary as to what its meaning is.
  • The term product location is far more useful for being self-descriptive.

Search Our Supply Planning Articles

Supply Planning Research Contact

  • Interested in Our Supply Planning Research?

    The software space is controlled by vendors, consulting firms and IT analysts who often provide self-serving and incorrect advice at the top rates.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, contact us and we will be in touch.

References

Brightwork MRP & S&OP Explorer

Improving Your Supply Planning, MRP & S&OP Software

Brightwork Research & Analysis offers the following supply planning tuning software, which is free to use in the beginning. See by clicking the image below:

https://www.lokad.com/stock-keeping-unit-(sku)-definition

I cover supply planning and stocking principles in the following book.

Safety Stock and Service Level Book

Safety Stock

Safety Stock and Service Levels: A New Approach

Important Features About Safety Stock

Safety stock is one of the most commonly discussed topics in supply chain management. Every MRP application and every advanced planning application on the market has either a field for safety stock or can calculate safety stock. However, companies continue to struggle with the right level to set it. Service levels are strongly related to safety stock. However, companies also struggle with how to set service levels.

How Systems Set Safety Stock

The vast majority of systems allow the setting of safety stock by multiple means (static, dynamic, adjustable with the forecast in days’ supply, etc..). However, most systems do not allow the safety stock to be set in a way that is considerate of the inventory that is available to be applied.By reading this book you will:

  • Understand the concepts and formula used for safety stock and service level setting.
  • Common ways of setting safety stock.
  • Service levels and inventory optimization applications.
  • The best real ways of setting both service levels and safety stock.

Chapters

Chapter 1: Introduction
Chapter 2: Safety Stock and Service Levels from a Conceptual Perspective
Chapter 3: The Common Ways of Setting Safety Stock
Chapter 4: The Common Issues with Safety Stock
Chapter 5: Common Issues with Service Level Setting
Chapter 6: Service Level Agreement
Chapter 7: Safety Stock and Service Levels in Inventory Optimization and Multi-Echelon Software
Chapter 8: A Simpler Approach to Comprehensively Setting Safety Stock and Service Levels

Service Level & Safety Stock Setting

Service Level & Safety Stock Setting

Setting service levels and inventory can be performed far more easily than is done at the vast majority of companies. Click the image to see how.

service_level_and_safety_stock_setting